Charities chasing contracts must be aware of the risks

07 February 2012

Contracts can be a challenge for a sector that has historically been prudent, says Andrew Studd, a partner in the charity team at Russell-Cooke Solicitors

Andrew Studd

The controversial reforms outlined in the government's Health and Social Care Bill might provide opportunities for the voluntary sector to deliver more services, but they also introduce a significant degree of risk.

In a sector that has historically valued prudence, some service delivery will require considerable investment up front. Organisations must be well-resourced, flexible and adaptable enough to take advantage of circumstances - if they don't, others will. Sadly, this means these opportunities will be for the few rather than the wider sector.

Any new service provision contract is going to be tendered and bids are expected from a wide range of organisations, including commercial firms, not-for-profit employee-led cooperatives and some larger charities. The question is whether the disastrous tender results experienced by the sector under the Work Programme will be replicated and, in particular, if the government will opt for a model under which large commercial prime contractors will deliver services, using third sector organisations as subcontractors to deliver on the ground.

It can be difficult for trustees to cope with the massive amount of work and resources involved in pulling together credible bids, to commit their charity's free reserves to deal with the cash-flow requirements of the contract and to negotiate a fair balance of risk and reward in their dealings with prime contractors.

One example comes from the proposals for restructuring patient input into the NHS. The relatively small Local Involvement Networks are being replaced by a national HealthWatch organisation, with new independent HealthWatches established at borough level with a view to strengthening the public's voice and to act as local consumer champions for patients.

If the Health and Social Care Bill becomes law, funding that previously went into this area will be tripled and channelled through local authorities. It is one area of the NHS in which more money is potentially available to the voluntary sector.

Unfortunately, the money will not be ring-fenced and it is not clear whether the whole amount will be passed down or whether it will be top-sliced or otherwise eaten up by the local authorities.

This partly depends on how the local authority commissions the service and whether it will be tendered as one contract, whether the services will be split and tendered separately and whether elements of the service will be retained by the local authority itself. For smaller organisations, this still brings up-front costs with no guarantee of success or a sustainable funding stream if successful.

As with so many other areas of government contracting, there is a tension between the needs of local democracy and the pressing desire of civil servants to commission as rapidly and simply as possible, involving as few partners as they reasonably can.

The inherent risks of participating in tendering exercises of this sort require significant resources and an appetite for risk that the majority of the sector does not have. While winning these contracts is not critical to many organisations, for some in the sector it is increasingly the norm.

If the voluntary sector is to win its share of new NHS contracts, it will have to consolidate substantially so that charities can allocate the necessary resources and bear the risks of participating in the new tendering arrangements.

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